The failure of the Silicon Valley Bank

Good morning dear readers,

they are veritable shock waves that are currently rolling through the financial market. The origin of the quake is in the USA, more precisely in California’s Silicon Valley – the miracle valley of technology companies. As it became known at the end of last week, the money house for many start-ups, the Silicon Valley Bank, is bankrupt. The consequences are already enormous, even if the full dimension for the financial world is not yet foreseeable.

So that you don’t lose track of the complicated situation, here are the most important answers to the most pressing questions of the day:

Why did it go bankrupt? The origin lies in a chain of circumstances that, paradoxically, began with too much money.

Circumstance number 1: During the tech boom, startups made a lot of money and parked a lot of it at Silicon Valley Bank. At the same time, however, lending did not increase at the same rate, so the money had to go elsewhere. The bank invested part of this in government and mortgage bonds when prices were particularly high.

Circumstance number 2: Interest rates rose, ending the tech boom while causing bond prices to fall. When many start-ups wanted their money, the bank was forced to sell its bonds and thus realize losses.

Circumstance number 3: The money worries unsettled many customers, they withdrew their money on a large scale.

The result: The bank became insolvent.

The Silicon Valley Bank unleashes a tremor on the financial markets.

What are the effects of bankruptcy? The bank’s customers are hardest hit, including many young companies. Handelsblatt tech correspondent Stephan Scheuer wrote a status report from San Francisco. Local start-ups such as the recipe box mailer Hellofresh and the air taxi company Lilium have also parked money at the bank. Silicon Valley Bank is estimated to have around 3,600 customers across Europe.

But the shock waves are also clearly being felt beyond the start-up world. The banks have had to accept their worst losses since the Covid crash in the past few days. The price losses show which financial institutions investors consider safe – and which ones they think could stumble.

Is there a new crash on the financial markets? That’s the $1 billion question investors around the world are asking. Nobody can predict that exactly. What is treacherous is that a mere accident looks similar to the beginning of a deeper crisis.

According to Handelsblatt financial market expert Frank Wiebe, the markets will still need a while to process the shock. And it’s uncertain what other surprises the financial system has in store. The current market environment could help them emerge soon.

What’s next? In the tech industry, there was great relief late Sunday evening (local time): Today, customers should have access to their entire credit balance. It’s a surprising breakthrough. US Treasury Secretary Janet Yellen and other regulators want to prevent panic in the markets.

All current developments can be found in our news blog.

graphic

Now for a story of great alienation and the looming end of a perfect symbiosis. It’s about the relationship between car manufacturers and their suppliers. Some deliver the required vehicle parts, others install them, and in the end everyone benefits.

But the big car brands are increasingly emancipating themselves from this relationship of dependency and want to produce the required components themselves. From 2025, Volkswagen wants to build many of the parts required for the electric drive itself. Other manufacturers have announced similar steps.

As expected, the initiative is not well received by the suppliers. Because if a manufacturer like VW decides to manufacture important components themselves, they lose up to ten percent of the overall market in one fell swoop. The shift towards electric drives is not good news for the industry anyway. Because a combustion engine consists of many more components than its electric counterpart.

The balance of power is currently shifting more and more in the direction of the large manufacturers. This is also shown by a look at the profit margins, where the car manufacturers are now doing significantly better than the suppliers.

The lower prices on the energy exchanges are calling low-cost suppliers back onto the scene.

(Photo: imago/Jochen Tack)

Low-cost electricity providers such as Sparfuxx, Ideal Energie and Grüner Funke are currently celebrating a big comeback. But the return of cheap offers awakens bitter memories of a time just a year and a half ago, when discounters put hundreds of thousands of customers on the street without electricity. The high prices on the energy exchanges had pushed the low-cost providers to the edge of their financial possibilities.

If you want to get involved with the promised bargains again, you should take a close look at the companies behind them. The following applies: not everything that is cheap is good. But not everything that is cheap is automatically dubious. Some providers seem to have learned from the past crisis and better secured their business models against risks. In addition, suppliers are no longer allowed to stop deliveries overnight.

And then there is a small but fine film award ceremony in Los Angeles, where the German anti-war film “Nothing New in the West” pretty much swept the tide that night. Unfortunately, I can’t yet present you the complete list of winners – but I can provide a fun fact about the Oscars that you can use to impress your colleagues during the small talk in the coffee kitchen:

Winners of the small statue are not allowed to simply resell them at the flea market if they feel like it. First, the trophy must be made available for purchase by the Academy itself – for a symbolic dollar. Only if she refuses are the award winners allowed to sell their awards elsewhere.

I hope that you, too, will be honored for your life’s work today.

Best regards
Her

Teresa Stiens
Editor of the Handelsblatt

Morning Briefing: Alexa

source site-11